Cash-Flow Statement
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Statement of Cash Flows:
The connection between two successive
balance sheets & the statement of cash
flows can be shown :
a. Assets = Liabilities Owners’ equity
b. Cash Noncash assets = Liabilities Owners’ equity
c. Cash = Liabilities Noncash assets Owners’ equity
d. Cash = Liab Noncash assets Owners’ equity
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Statement of Cash Flows:
Cash = Liab – Noncash assets Owners’ equity
The cash flow statement simultaneously
provides an explanation of why a firm’s cash
position has changed between successive
balance sheet dates and explains changes that
have taken place in the firm’s noncash asset,
liability, and stockholders’ equity accounts over
the same time period.
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II. Statement of Cash
Flows:
The change in a firm’s cash position
between successive balance sheet
dates will not equal the reported
earnings for that period.
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Statement of Cash Flows
A summary of a firm’s payments
during a period of time.
This statement reports cash inflows
and outflows based on the firm’s
operating activities,
investing activities, and
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financing activities.
Statement of Cash Flows
Cash Flow from Operating Activities
Shows impact of transactions not
defined as investing or financing
activities.
These cash flows are generally the cash
effects of transactions that enter into the
determination of net income.
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Cash Flow From
Operating Activities
Cash Inflows
From sales of goods or services
From interest and dividend income
Cash Outflows
To pay suppliers for inventory
To pay employees for services
To pay lenders (interest)
To pay government for taxes
To pay other suppliers for other operating
expenses
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Cash Flow From
Operating Activities
It would seem more logical to classify
interest and dividend income as an
“investing” inflow, while interest paid
certainly looks like a “financing” outflow.
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Statement of Cash Flows
Cash Flow from Investing Activities
Shows impact of buying and selling fixed
assets and debt or equity securities of
other entities.
Cash Flow from Financing Activities
Shows impact of all cash transactions with
shareholders and the borrowing and
repaying transactions with lenders.
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Cash Flow From Investing
Activities
Cash Inflows
From sale of fixed assets (property, plant,
equipment)
From sale of debt or equity securities (other than
common equity) of other entities
Cash Outflows
To acquire fixed assets (property, plant,
equipment)
To purchase debt or equity securities (other than
common equity) of other entities
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Cash Flow From
Financing Activities
Cash Inflows
From borrowing
From the sale of the firm’s own equity
securities
Cash Outflows
To repay amounts borrowed
To repurchase the firm’s own equity
securities
To pay shareholders dividends
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Indirect Method --
Statement of Cash Flows
Cash Flow from Operating Activities
Net Income Rs 91
Depreciation 30
Decrease, accounts receivable 16
Increase, inventories (80)
Increase, accum. tax prepay (1)
Net cash provided (used) by
operating activities Rs 56
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Indirect Method --
Statement of Cash Flows
Cash Flow from Investing Activities
Additions to Fixed Assets Rs (100)
Net cash provided (used) by
investing activities Rs(100)
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Indirect Method --
Statement of Cash Flows
Cash Flow from Financing Activities
Increase, notes payable Rs (5)
Increase, long-term debt 77
Dividends paid (38)
Net cash provided (used)
by financing activities Rs 34
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Indirect Method --
Statement of Cash Flows
Increase (decrease) in cash
and cash equivalents Rs (10)
Cash and cash equivalents, 2006 100
Cash and cash equivalents, 2007Rs 90
Supplemental cash flow disclosures
Interest paid Rs 59
Taxes paid 60
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